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10 Sep 2010

Hey Small Business Owner. Your Frugal Self Called. They Want Their Money Back.

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by Jesse Mecham

It’s deductible.

Oh, I run that through the business.

This is a business expense.

90% of you small business owners say something like the above to justify spending money on who knows what.

Marketers know this. If you have a value proposition for a business, you can instantly command a higher price because suddenly you’re talking about the hopes, dreams, aspirations, and burning desires of the small business owner…

If I were ever to package up YNAB for Small Business…I’d probably double the price. Products leveraged in a business usually create more value. You see this all the time.

But you, as a small business owner, need to be painfully aware of the fact that you are weak when it comes to resisting purchase that are “for the business.”

Your Cost Radar is Skewed

If your business is bringing in $300,000 gross, but your take home from that is $60,000 you deal with two very different psychological cost radars. Evaluating a $300 purchase through the lens of your $300k gross business is entirely different from evaluating a $300 purchase through the lens of your household (where you likely compare it to the $5k/month of take home you have).

You see what happens there? You’re simply less sensitive to pricing. Is there something beyond the difference in price sensitivity that drives your reckless business spending? Yes there is.

Business Money is “Special”

For some reason, you treat that money as special. Once it hits the household, oh sure, you watch those nickels and dimes like a hawk. But if it’s in the business account? And somebody comes knocking, selling you the next best thing to revolutionize your business…you go for it hook, line, and sinker. Because hey, it’s deductible, right? I mean, it’s a business expense. It won’t affect your household at all…

And you really like shiny things. So every chance you get, you upgrade your business phone to the latest and greatest because hey, it’s a business expense. It’s deductible.

(To compute the value of a deduction, multiply the cost of whatever thingamajig you’re buying by your marginal tax rate — that’s the tax you pay on the next dollar earned. Your CPA can tell that to you and some tax compliance software will give that to you in a summary report. The tax considerations of business expenses are legitimate. If your marginal tax rate is 35%, that’s a 35% discount on whatever you’re purchasing that can be fully deducted. However, the purchase needs to make business sense first. That’s your litmus test.)

You Report to…Yourself?

Another nice thing about the business coffers is that you don’t have to answer to your spouse to nearly the same level of detail when it comes to your purchases. So…the iPad you just bought (you’re going to be developing some software for it, so you needed one)…no need to talk to Julie your spouse about it. It’s a business expense.

The netbook you purchased to do testing of your software on netbook resolutions…that doesn’t go through the home budget so…Julie your budget doesn’t need to know about it.

The business account is like your personal playground where you don’t have to answer to anyone.

And you need to change that.

Your Business Needs A Budget (YBNAB…oh dear that doesn’t work)

Revolutionize your business finances by putting your business on a budget.

Apply the same YNAB Rules that you have personally, to your business. Magic will happen:

And maybe you could share the books with Julie your spouse and have them ask questions. Get a different perspective. Be forced to defend your purchases!

Be aware of the fact that your Business Self and your Home Self may be two entirely different people and your Business Self may very well be flushing hard-earned dollars down the toilet 🙂

Your Next Step

Remember, budgeting is not restrictive. You won’t be spending less, you’ll be spending right. You can do this! Today. Right now. What do you have to lose? Except all that debt and stress. (Ok, so kind of a lot.)


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